Competition Appellate Tribunal (COMPAT) by its order dated December 9, 2016 has set aside the orders dated 19.2.2013, 09.12.2013

passed by the Competition Commission of India (CCI) and allowed the 3 appeals filed by All India Organization of Chemists and Druggists (AIOCD) quashing the penalties imposed by CCI on AIOCD and its office bearers for alleged anti-competitive practices in distribution of drugs in India.

Based on an earlier information filed by Santuka Associates Pvt. Ltd. , Cuttack ,Odisha in 2011 and other two chemists in Barpeta (Assam) and in Pallkad (Kerala) , the CCI vide the orders mentioned above had penalized the AIOCD and its President and other office bearers along with its affiliate Trade Associations of Chemists / Drug Dealers in the States of Kerala and Assam for creating restraint on freedom of trade on account of various practices, such as, insisting on pharmaceutical companies to (i) procure a “No Objection Certificate” (NOC) from them before appointing any new stockists in the district; (ii) pay a mandatory charge in the form of a “Product Information System” (PIS) charge for publication of news about launch of any new medicine (iii) prohibit discounts or at the very least- restrict the level of discounts to be given by retailers to ultimate customers and thereby (iv) entering into agreements to fix the margins of wholesalers and retailers at 10% and 20%, respectively, for non-scheduled drugs.

Based on the findings, the CCI held the conduct of AIOCD and its affiliate trade organizations violated Section 3(3)(a) and 3(3)(b) of the Competition Act, 2002 (the Act). The CCI imposed penalty at the rate of 10% of AIOCD average receipts during the preceding three years and also penalized individual office bearers on the basis of the preceding 3 years average Income-tax returns.

While deciding the issue, the COMPAT took notice of the Mashelkar Committee Report of 2003 which recommended that the chemist trade associations should play an active role in preventing the menace of spurious and counterfeit drugs.

The COMPAT noted that the findings of the CCI and the DG were self-contradictory and largely based on conjectures. On the issue of NOC, COMPAT noted that even though at various places in the DG Report, it was stated that there was no sufficient evidence to suggest that the trade associations have tried to restrict/limit the number of players and thereby also restrict/limit the supply of medicines in the market yet the DG and the CCI proceeded to conclude that the requirement of NOC restricted / limited the entry of new chemists / stockiest. It noted there was hardly any evidence to suggest that either the membership of AIOCD or its affiliate trade associations at the State and District level was restricted to any particular class of people engaged in the business or trying to enter the market of drug distribution in India or that NOC was ever denied by any chemist association to a bona fide chemist and noted that as per the DG investigation, the pharmaceutical companies had stated that the NOC was really not a big issue. The COMPAT cited its earlier decision in case of Chemists and Druggists Association, Ferozepur City vs. Competition Commission of India and others (Appeal No. 21/2014) to say that it was incorrect to conclude that NOC is mandatory in the absence of cogent evidence. Further, the COMPAT noted that this exercise was undertaken to verify the credentials of the new stockists and could not be called mandatory.

As regards the PIS charge, the COMPAT, agreeing with the view of AIOCD, noted that PIS approval is meant to facilitate implementation of the provisions of the Drugs (Prices Control) Order, 1995 and that PIS approval was nothing but a mechanism evolved for informing the industry participants about the price of a new drug to be introduced in the market by a pharmaceutical company. COMPAT observed that charging of PIS approval cannot lead to restriction in supply of medicines in the market.

On trade margins, the COMPAT over-ruled the opinion of the majority of the CCI and observed that the majority of CCI did not even consider the submission of AIOCD that trade margin is fixed by the manufacturer and not by the Chemists and Druggists Association and therefore it could not be said that it led to the determination of purchase or sale price of drugs in violation of section 3(3) (a) of the Act.

The COMPAT, therefore, concluded that the conclusions of the CCI on the violation of Section 3(3) of the Act on account of the abovementioned practices by AIOCD and its affiliate associations were wholly erroneous and cannot be sustained. The appeals have been allowed and the CCI orders against 3 trade associations have been set aside.[Source: COMPAT Order dated December 9, 2016; For details see COMPAT website: www.compat.nic.in]

 Comdt. (Retd.) M. M. Sharma heads the Competition Law & Policy team in VA since 2009 and has over 30 years’ experience as an Advocate of Delhi High Court and holds a Post Graduate Diploma in Economics of Competition Law from Kings College, London. He has worked in the Competition Commission of India (CCI) as Additional Registrar during 2006-2008 and was responsible for drafting the Implementing Regulations under the Competition Act, 2002. He has experience of working as Head-Legal /In-house Counsel for a large Corporate Group in the Steel and Power sector before joining VA in 2009. He has represented clients as an independent arguing Counsel in landmark cases decided by CCI, the Competition Appellate Tribunal (COMPAT) , High Courts and the Supreme Court. As a prolific writer, he contributes articles and is regularly quoted on competition issues in National Newspapers and interviewed by TV Channels. He also teaches as a visiting faculty in various Universities and Institutions and is widely regarded as a subject expert in various Committees of Apex Business Chambers, such as FICCI, CII, ASSOCHAM and PHD CCI.
 Mr. Sharma has been mentioned as a “Notable Practitioner” in the “Competition/Antitrust” category of Chambers & Partners (Asia Pacific) Ranking of Leading Lawyers for Business in India for the year 2012 and 2013. VA’s competition law and policy team has also been awarded the Law Firm of the Year Award for “Competition/Antitrust Law” for 2013 by the Indian Business Law Journal.